Water Quality Trading in New Jersey USA: A WatershedScale Approach to Reduce

1

• Water Quality Trading in New Jersey (USA) A
  Watershed-Scale Approach to Reduce

• Aggregate Discharge of Total Phosphorus from
  Wastewater Treatment Plants

Christopher Obropta, Ph.D., P.E., and Josef
Kardos, Department of Environmental Sciences,
Rutgers University www.water.rutgers.edu/Projects/
trading/Passaic
Trading and Water Quality Hot Spots
Concerns and Solutions
Abstract

The New Jersey Department of Environmental
Protection (NJDEP) is developing a Total Maximum
Daily Load (TMDL) which will set phosphorus load
allocations for point and nonpoint sources in the
Non-Tidal Passaic River Basin (area 1733 km2).
The most immediate impacts will fall on 24 of the
largest wastewater treatment plants (WWTPs) in
the basin. Most WWTPs will likely have to
significantly reduce phosphorus effluent
concentrations at great expense to meet
anticipated TMDL waste load allocations. Water
quality trading is a market-based mechanism to
increase the cost-effectiveness of TMDL
implementation. A multi-disciplinary team of
Rutgers University and Cornell University
faculty, with expertise in water quality
modeling, wastewater treatment, environmental
policy and environmental economics, are working
together with USEPA, NJDEP, local municipalities
and WWTPs, and environmental non-governmental
organizations (NGOs) to design, implement, and
evaluate a phosphorus trading program for the
Non-Tidal Passaic River Basin. Results from the
project design phase are presented. The
development of a trading framework that addresses
trading ratios, trading boundaries, and the
avoidance of pollution hot spots are discussed.
The results from economic modeling of simulated
trades are also reviewed.

• Trades that create hot spots localized areas
  of unacceptably high pollutant levels must be
  avoided.
• In trading, because the buyer is exceeding its
  allocation, pollutant levels will increase
  downstream of the buyer.
• How does the project ensure that hot spots will
  not develop downstream of buyers?
• Trading ratios are applied to each transaction to
  account for fate and transport effects. Ratios
  are calculated by comparing TP attenuation from
  each point source relative to downstream
  locations. In Figure 1, TP summer attenuation
  coefficients at Dundee Lake (PA-11) are 60 and
  50 from Upper Passaic Zone 1 and Troy Hill Zone,
  respectively. Therefore, the trading ratio is
  0.5/0.6 0.83 (if seller is upstream). If the
  buyer needs 500 kg of credits, the seller must
  generate 600 kg of credits to satisfy the ratio.
  A table of trading ratios has been calculated
  for all WWTPs in the watershed.
• Figure 1 Phosphorus attenuation from two point
  source zones in the watershed
• Trades are restricted and conducted within a
  framework that prevents the creation of trading
  hot spots.
• Trading Framework Option 1 No trading across
  tributaries
• Aims to protect all reaches assumes excessive TP
  anywhere is a water quality concern
• Trading boundaries Seller must be upstream of
  buyer
• Simple to implement less opportunities to trade
  most conservative water quality protection
  strategy
• Trading Framework Option 2 Management Area
  approach
• Aims to protect TMDL endpoints assumes excessive
  TP is only a water quality concern at the
  endpoints (Dundee Lake and Wanaque Reservoir)
• Trading boundaries Group WWTPs into management
  areas. See Figure 2.

Figure 3 Wastewater treatment plants in the
Non-Tidal Passaic River Basin
Watershed figures 1733 km2 area Approximately 2
million people Predominantly forest (42), urban
(40) and wetlands (12) land use / land
cover 23 reservoirs including NJs largest
Wanaque Reservoir
Introduction

• The non-tidal portion of the Passaic River Basin
  encompasses 2080 km2, with 1733 km2 of the
  watershed in New Jersey (NJ) and the remainder in
  New York.
• 23 reservoirs, which provide potable water to 25
  of NJ residents (i.e., 2 million people), are
  located within the Non-Tidal Passaic River Basin.
  
• Includes the Wanaque Reservoir, the largest
  potable water source in NJ (capacity 138.5
  billion liters)
• Surface water quality standards for nutrients,
  dissolved oxygen, pH, temperature, pathogens,
  metals and pesticides are often exceeded in the
  watershed.
• Over 320 stream km are impaired due to total
  phosphorus (TP) concentrations in exceedance of
  0.1 mg/l (NJDEP, 2005a).
• There are 19 wastewater treatment plants within
  the watershed that are each permitted to
  discharge more than 3.8 million liters per day of
  treated effluent. These treatment plants
  contribute the majority of the phosphorus load
  to the watershed (NJDEP, 2005b).

Economic Modeling

• Cornell University team developed economic model
  to identify trading scheme that can best minimize
  treatment costs (Sado, 2006).
• Model uniquely includes marginal abatement costs
  and incremental capital costs
• Considered multiple scenarios based on potential
  TMDL allocations and trading zones
• Key Findings
• Sufficient incentives for limited but important
  multi-year bilateral or trilateral deals
• A phased in TMDL cap will reduce costs of TMDL
  implementation because it allows flexibility in
  the timing of capital investments

Trading Framework Option 2 Schematic
Holmdel Park, 2003
Need for Water Quality Trading
Legend
Management Area boundary Endpoint River /
tributary

• Phosphorus loading from point and nonpoint
  sources within the Non-Tidal Passaic River Basin
  must be addressed to restore its water quality.
  Excess phosphorus in freshwater bodies can cause
  eutrophic conditions, e.g. algal blooms, depleted
  oxygen levels, and even fish kills.
• A TMDL for phosphorus is being developed for the
  non-tidal Passaic River Basin due to exceedances
  of NJs water quality criteria for TP (0.1 mg/l
  in freshwater streams 0.05 mg/l in lakes).
• The TMDL will establish waste load allocations
  for phosphorus in the watershed. It is likely
  that all point sources will be required to reduce
  phosphorus loading to the Passaic River.
  Upgrading each WWTP to meet its TMDL allocation
  will be very costly.
• Water quality trading is based on the premise
  that sources in a watershed can face very
  different costs to control the same pollutant. A
  trading program allots a certain number of
  pollution credits to each source in the
  watershed. The sources can either discharge under
  their limit and sell their credits, or discharge
  over their limit and purchase credits. The net
  effect will be to improve water quality in the
  watershed at a lower cost than making each
  individual pollutant source upgrade effluent
  treatment to meet its discharge limit.
• The Passaic situation is ideal for a water
  quality trading program
• Presence of a market driver - stringent TP
  criteria
• Presence of a TMDL - TMDL allocations provide a
  cap, and can be used to identify potential
  trading opportunities within the watershed
• High quantity of point sources and potential
  program participants 24 WWTPs and 89 municipal
  separate storm sewer systems (MS4s).

Conclusions
Wanaque Reservoir

• Water quality trading has potential to reduce
  aggregate discharge of total phosphorus from
  wastewater treatment plants in the Non-Tidal
  Passaic River Basin, in turn decreasing the
  frequency and severity of algal blooms in the
  watershed.
• Hot spot issues will be avoided through
  application of trading ratios careful selection
  of a trading framework will ensure that trades
  protect and improve water quality
• Economic modeling indicates that although market
  size is limited, important multi-year bilateral
  or trilateral deals can be achieved which will
  reduce costs of TMDL implementation for parties
  involved. A phased in TMDL cap will enhance
  trading through increased flexibility in timing
  of capital investments.
• Upon release of official TMDL allocations,
  various trading scenarios will be simulated and
  evaluated from a water quality and economic
  standpoint.
• A monitoring strategy is in development to study
  the effects of actual trades and facilitate
  adaptive management.

Pompton M.A. 3 WWTPs
Dundee Lake endpoint

Upper Passaic M.A. 16 WWTPs
Lower Passaic M.A. 3 WWTPs
Dundee Lake
Wanaque South intake endpoint

Figure 2 Schematic of management areas

• Each management area (M.A.) is bounded by a TMDL
  endpoint. The endpoint is the only potential hot
  spot in the management area.
• Within each management area, bidirectional
  trading is allowed sellers can be downstream of
  buyers and vice versa.
• Inter-management area trading
• Upper Passaic M.A. can sell to Lower Passaic
  M.A.
• Pompton M.A. can sell to Upper and Lower Passaic
  M.A.s

Acknowledgments The authors wish to acknowledge
Dr. Richard Boisvert, Dr. William Goldfarb, Dr.
Greg Poe, Dr. Peter Strom, Dr. Christopher
Uchrin, Mehran Niazi, Yukako Sado, USEPA, NJDEP,
the Passaic River Basin Alliance, and TRC Omni
Environmental Corp. for their involvement in
this multidisciplinary research effort. The
research was supported by a USEPA Targeted
Watershed Grant.
New Jersey Department of Environmental Protection
(NJDEP) 2005a. New Jersey 2004 Integrated Water
Quality Monitoring and Assessment Report (305(b)
and 303(d)). Water Assessment Team, Trenton, New
Jersey. New Jersey Department of Environmental
Protection (NJDEP) 2005b. Amendment to the
Northeast, Upper Raritan, Sussex County and Upper
Delaware Water Quality Management Plans Phase I
Passaic River Study, Total Maximum Daily Load for
Phosphorus in Wanaque Reservoir, Northeast Water
Region. Division of Watershed Management,
Trenton, New Jersey. Sado, Y., 2006. Potential
Cost Savings from Discharge Permit Trading to
Meet TMDLs for Phosphorus in the Passaic River
Watershed. Masters Thesis, Cornell University,
Ithaca, New York.
Ramanessin Brook, 2003